Making piece rate work

The objective of incentive pay is that both the worker and the grower are better off.

Dec 1, 2006

Facing rising labor costs and a shrinking pool of workers, Yakima Valley Orchards has been studying its options.

Last summer, the Yakima, Washington-based company hired University of Washington economics student Chad Anders to compare the productivity of workers paid piece rate versus by the hour.

In one test at the company’s Grandview orchard, workers were paid hourly for one day to thin Granny Smiths, with the wage rates ranging from $7.36 to $8.48 per hour. The next day, when they were paid piece rate for each tree thinned, their productivity increased by 39 percent. The goal had been for them to make around $10 an hour, but the average wage rate was $23 per hour. The cost to the company increased from $222 per acre for hourly pay to $256 per acre for piece rate. Owner Dave Allan said the piece rate for the test was obviously set too high.

In another test at the company’s Valley View Ranch, where employees were thinning Gala apples, there was also a 39 percent increase in productivity when workers were paid piece rate rather than an hourly wage. Their piece-rate earnings worked out at an average of $8.93 an hour. The cost to the company dropped from $566 to $402 per acre when workers were paid piece rate. The piece rate had been established by having the ranch manager thin a row first to figure out how many trees a hard-working person could thin in an hour.

Allan said he’s looking for a way to pay workers an incentive-based wage while getting quality work done, which would be beneficial to everyone.

“The concept is to make it so the people who work for us can make more money, and we get the job done, and everyone is happy.”

Workers who are paid piece rate usually work harder. Another advantage is that incentive-based pay tends to attract hard workers who want to make more money, rather than the slower workers who make more when they’re paid by the hour.

Anders said during the tests, while the pickers were being paid an hourly wage, he noticed one employee working with only one hand and asked him why. The employee responded, “Because I only get paid $7.63 an hour.”

Allan said that is a classic example of why incentive pay is the way to go. He pays piece rate for some jobs, including color picking and thinning, but it requires more supervision, and the job must be well defined.

When it comes to pruning, each tree down the row must be uniform so that the workers clearly understand the steps they need to go through to prune each tree. It does not work well if there is a lot of variability in the canopy down the row so that workers have to make judgments about the work they’re doing.

“Sometimes, piece work just doesn’t work,” he said. “The canopies are too uneven, with heavy and light trees.”

Allan said he is working to achieve more uniformity in his new plantings to make them more efficient for workers. “Whatever job we’re going to do, it has to be relatively simple,” he said.

Reduce costs

Gregory Encina Billikopf, a farm advisor in labor management at the University of California, said when it comes to piece rate, traditionally both the employer and worker have come to believe that the other is out to cheat them. Yet, the proper piece-rate design can allow employees to maximize their earnings while farmers reduce their costs.

When growers pay piece rate and employees end up making three times the minimum wage, growers are likely to feel that they made a mistake when they set up their piece rate, Billikopf said. But instead of panicking, the grower needs to look at the bottom line, such as the cost per tree pruned or pound of fruit picked, and ask: “Does the farm operation make more money as the workers make more money?”

If the answer is “maybe” or “no,” the piece-rate design is faulty. If the answer is “yes,” then growers shouldn’t worry about the money their workers are taking home. Workers who earn a lot are unlikely to be attracted to other jobs that pay less.

A problem with piece rate, however, is that workers worry that growers will cut the piece rate—either now or next year—if they perform at their full potential.

Employers who want workers to feel safe about giving their best efforts should talk frankly with their employees about piece-rate games, Billikopf suggested.

“Talking explicitly about these issues is beneficial. Even if your farm operation has never cut the piece rate on employees, most farmworkers have experienced this unfortunate tactic either directly or through someone they know well,” he said. “I have found it very useful to invite a few workers to sit down with management and help fine-tune the piece-rate design.”

Equivalent

The grower then needs to determine what the ideal conditions are for the work involved. For example, during harvest, ideal conditions are trees loaded with fruit. This needs to be translated to a specific minimum number of pounds per tree. When there are fewer fruit to pick, the piece rate should be increased, Billikopf suggests. Some pickers will always outperform others, but for any given picker the same amount of effort should result in the same amount of pay, regardless of the crop on the tree.

For more information about incentive pay, check the Web site at http://tinyurl.com/99cq or contact Billikopf at gebilli kopf@ucdavis.edu, or telephone (206) 525-6800.

Geraldine Warner was the editor of Good Fruit Grower from 1992-2015. During her tenure, she planned and prepared editorial content, wrote for the magazine, and managed the editorial team.
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